FIRMS on the south coast are missing out on thousands of pounds in tax breaks for research and development.

Tax expert Paul Duckworth says companies across the region are not taking advantage of the breaks they are eligible for simply because they are unaware they exist.

Mr Duckworth, a partner in tax services to business at Smith & Williamson’s Southampton office, said HM Revenue and Customs currently values research and development (R&D) tax credits at £1.75 billion for 2013-14 the latest figures which are available.

He said total claims had shot up by 19 per cent and those submitted by small and medium sized businesses (SMEs), by 23 per cent.

But he added: “However, That leaves thousands of businesses missing out on an incredibly valuable source of funding – especially those in the early years of trading and often under pressure from a cashflow perspective.

“These business owners are either unaware of the potential benefits of R&D tax credits or possibly think they do not qualify. This might be costing them vital funding if they are spending money innovating and advancing technology.”

The tax credits were first introduced in 2000 and can provide a cash deduction for companies who are developing new services or products. The annual claim for an SME is £48,000.

Earlier this year the government upped the SME R&D uplift on qualifying spend to 230 per cent and the rate of tax credit repayable on surrendered losses for large companies to 11 per cent.

He added: “Loss-making SME businesses are now eligible for a repayment of up to 33 per cent of qualifying expenditure, whereas those which are in profit can save tax at the rate of 46 per cent of qualifying expenses.”

SMEs can benefit from an enhanced rate of R&D tax credits compared to larger businesses. To qualify, SMEs must employ fewer than 500 people and have either an annual turnover of no more than 100 million euros or a balance sheet total not exceeding 86 million euros.

“However, there has been a 10 per cent decline in SMEs claiming both payable credits and a deduction from the corporation tax liability, potentially due to unawareness that the two can be combined.”

He said that many firms, such as sub-contractors working for larger companies, were unaware of the deductions and that there are take-ups of just two per cent and one per cent in the real estate and finance and insurance sectors.

He added: “This is surprising considering the technological developments in construction methods, the advent of online estate agents and the increasing automation of many financial services as IT projects often qualify for the R&D tax credits.

“It is a great shame that these industries continue to show low levels of claims. Smith & Williamson has assisted many clients in these industries in making successful claims and would urge any companies which are spending on innovation in these areas to review their position.”

SMEs are eligible if they employ fewer than 500 people and have either an annual turnover of no more than 100 million euros or a balance sheet total not exceeding 86 million euros.